Help for newbie considering drawdown pension

Fretful

Albermarle said:

Fretful said:

Albermarle said:

As for taking 25% now, the idea would be to move the rest of the pot to a new investment platform where it could continue to grow and the fees are lower. There are three pensions in that pot, two of which are inactive (not paid into since the 1990s) and are bleeding money on fees without any meaningful growth.

As mentioned in several posts, you should normally only take the 25% tax free, if you have some use for the money.
If you do take it , or part of it, it would be better to do this once you have consolidated your pensions into one.
At the moment your pension pot is 'uncrystallised' . If you take the 25% then the remaining 75% is then' crystallised'
Generally it is easier to transfer uncrystallised pots than crystallised ones.
The two pensions you are not paying into are not 'inactive'. They will be invested and you are being charged for those investments.
Nearly all pension pots have gone down this year, by on average about 15%. However you should have seen good growth over the last few years.
Do you know what the fees actually are ?

As mentioned above, there are plenty of things we might like to do to use it, just none of it necessarily essential just yet.

Re: fees, they are not given as a total amount in pounds, but they are given as percentages per fund in each pension, and they give the investment split per fund, so I could work it out if needed. They are all higher than what I see on DIY platforms, especially Vanguard. Interesting thing that I don't understand, I am sure you or someone here will know why - the fees I am currently charged for with profits funds tend to be a lot lower than the others.

Normally with profits funds are more expensive at around 1 % , but it depends on what funds you compare them with of course.
Seems a little surprising that these pensions contain multiple funds, unless you have chosen to do it that way in the past. Most people with a workplace pension ( or ex workplace pension) just have one fund.

DIY platforms, like Vanguard, have a fund cost and a platform cost. You have to add them both together to get the true cost.
Probably ( can not be sure of course) your current pensions just have one all in charge.

The ones I am looking to do something with now are all PPs. The first was contracted out of SERPS, which stopped when I finally joined a company pension scheme, the second was a straight personal pension because I didn't want to join my then-employer's scheme, also stopped when I joined the next employer's scheme. The third, which is still being paid into, was originally a FSAVC scheme but morphed into a PP when I stopped being an employee.

The stated fees for the with-profits funds are actually 0.5% lower than the managed funds and the equity funds. Here my ignorance comes to even more light, as I don't really know what the difference is between the three, nor can I remember how it came to be split that way.

Albermarle

With profits funds are essentially a way of smoothing out the ups and downs of the market. They keep money back in the good times to lessen the effects of the bad times. They are seen as a bit old fashioned but many older plans still use them.
Managed funds are run by a manager who tries to use their expertise by picking winners or following certain strategies. They can have high charges and often they will not 'beat the market ' anyway .

QrizB

Fretful said:

Thanks for that, my thinking was that we could put it in something flexible though maybe low return to help with house renovation projects as and when we get round to them, or even things that can save on day-to-day costs like a PV array and battery storage. Also may need it to help out daughter if she decides to do a masters. Too many possibilities to know exactly what to do with it, but that is exactly what I was wondering - why can't it grow some other way if we don't use it straight away.

None of those things sound like something you'd do on the spur of the moment, and so need instant access to the money (like you'd get from a low-return savings account).

From reading this forum it sounds as though withdrawing a partial lump sum from your pension might take 2-3 months (although some pension administrators are quicker than others) so you could leave it invested until your plans are more solid?

zagfles

Fretful said:

Albermarle said:

As for taking 25% now, the idea would be to move the rest of the pot to a new investment platform where it could continue to grow and the fees are lower. There are three pensions in that pot, two of which are inactive (not paid into since the 1990s) and are bleeding money on fees without any meaningful growth.

As mentioned in several posts, you should normally only take the 25% tax free, if you have some use for the money.
If you do take it , or part of it, it would be better to do this once you have consolidated your pensions into one.
At the moment your pension pot is 'uncrystallised' . If you take the 25% then the remaining 75% is then' crystallised'
Generally it is easier to transfer uncrystallised pots than crystallised ones.
The two pensions you are not paying into are not 'inactive'. They will be invested and you are being charged for those investments.
Nearly all pension pots have gone down this year, by on average about 15%. However you should have seen good growth over the last few years.
Do you know what the fees actually are ?

As mentioned above, there are plenty of things we might like to do to use it, just none of it necessarily essential just yet.

Re: fees, they are not given as a total amount in pounds, but they are given as percentages per fund in each pension, and they give the investment split per fund, so I could work it out if needed. They are all higher than what I see on DIY platforms, especially Vanguard. Interesting thing that I don't understand, I am sure you or someone here will know why - the fees I am currently charged for with profits funds tend to be a lot lower than the others.

See http://www.comparefundplatforms.com or google "snowman's spreadsheet" to compare platforms. Vanguard are cheap if you are happy to be restricted to Vanguard investments, IIRC about 0.15% platform and a bit over 0.2% for their main funds.

zagfles

Fretful said:

gm0 said:

@Fretful.  Your basic choice is learn enough to DIY or find a reputable IFA and get categorised and placed on an adviser introduced platform. Both roads should lead to similar places. One is more work for you.  One is a service you pay for.

With DIY.  After you have worked out what your in retirement investments are going to be - from a single multi-asset fund to something more complex. You then pick a reputable but lowish cost platform company - that gives enough investment choice for what you want.  Could be Vanguard (but limited fund choice).  Could be someone else - iWeb, Fidelity International (especially if ETFs are used).  What each one costs varies with what you do - how often you trade or add money, what you invest in, how big the pot is.  So picking the platform arguably comes *after* deciding what you are intending to do.

With advised - the platform and portfolio are recommended to you as an outcome of the advice and then implemented for you if you agree.  The investments and platform part will largely cost the same as DIY (sometimes a bit more, sometimes a bit less - this depends so much upon the comparison points chosen.  Massive overlap.  It won't be the cheapest but if you stick to IFAs not wealth management/FA it will likely be OK.  Then you pay the adviser for their setup work (one off fee) and ongoing managment and review (typically fee of  0.5%/pot value each year on top).  That adds up long term and so the effort avoided of DIY needs to be worth it or not worth it to you and your family

There is some negativity upthread. Pensionwise are fine viewed as an early step to help you get to grips with the language of pension freedoms options. To ask questions you have about your understanding from reading the provider packs you are sent or from web content.  If you compare them to full advice they fall way short.  But that's like complaining that a bicycle is not a train. 
They don't set out to give advice.  Not set up for that.  Not intended to crowd out paid for advice.  They don't do the regulated fact find.  They are just an attempt to plug a gap where

1) pensions freedoms are complex to understand

2) Formal advice is not (in practice) available to all comers at a sensible price - just to the higher net worth group. 

Goverment created the complexity.  Then created this service to explain it a bit for an hour on the phone and signpost you to investigate further yourself or to go and seek paid advice which they harp on about a lot.

Thanks again, hope it is OK to follow up some things you mentioned. I would say you could consider me capable of understanding, but currently ignorant of how these newer (and older!) financial products work.

So as I said in the original post, I am drawn to the idea of DIY, but probably wouldn't want to be managing the investments myself daily or maybe even weekly. I have always looked to put my pension investments in ethical and/or green funds where possible, and would like to continue that approach, even if it doesn't necessarily give the best returns.

Bearing that in mind, can you suggest a) where I can go to learn enough to competently run it myself on a DIY platform, and b) do you know if there are any DIY platforms that are better for offering green and ethical funds?

There are now "investment pathways" which all drawdown providers offer, basically a small number (4 or 5) ready made investment options depending on what you want to do with your drawdown, see: https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/drawdown-investment-pathways

Some providers will offer "ethical/green" funds although a lot are baking "ESG" into their standard offerings under pressure from regulators and govt, eg see this from HL https://www.hl.co.uk/retirement/drawdown/investment-pathways

Fretful

zagfles said:

Fretful said:

gm0 said:

@Fretful.  Your basic choice is learn enough to DIY or find a reputable IFA and get categorised and placed on an adviser introduced platform. Both roads should lead to similar places. One is more work for you.  One is a service you pay for.

With DIY.  After you have worked out what your in retirement investments are going to be - from a single multi-asset fund to something more complex. You then pick a reputable but lowish cost platform company - that gives enough investment choice for what you want.  Could be Vanguard (but limited fund choice).  Could be someone else - iWeb, Fidelity International (especially if ETFs are used).  What each one costs varies with what you do - how often you trade or add money, what you invest in, how big the pot is.  So picking the platform arguably comes *after* deciding what you are intending to do.

With advised - the platform and portfolio are recommended to you as an outcome of the advice and then implemented for you if you agree.  The investments and platform part will largely cost the same as DIY (sometimes a bit more, sometimes a bit less - this depends so much upon the comparison points chosen.  Massive overlap.  It won't be the cheapest but if you stick to IFAs not wealth management/FA it will likely be OK.  Then you pay the adviser for their setup work (one off fee) and ongoing managment and review (typically fee of  0.5%/pot value each year on top).  That adds up long term and so the effort avoided of DIY needs to be worth it or not worth it to you and your family

There is some negativity upthread. Pensionwise are fine viewed as an early step to help you get to grips with the language of pension freedoms options. To ask questions you have about your understanding from reading the provider packs you are sent or from web content.  If you compare them to full advice they fall way short.  But that's like complaining that a bicycle is not a train. 
They don't set out to give advice.  Not set up for that.  Not intended to crowd out paid for advice.  They don't do the regulated fact find.  They are just an attempt to plug a gap where

1) pensions freedoms are complex to understand

2) Formal advice is not (in practice) available to all comers at a sensible price - just to the higher net worth group. 

Goverment created the complexity.  Then created this service to explain it a bit for an hour on the phone and signpost you to investigate further yourself or to go and seek paid advice which they harp on about a lot.

Thanks again, hope it is OK to follow up some things you mentioned. I would say you could consider me capable of understanding, but currently ignorant of how these newer (and older!) financial products work.

So as I said in the original post, I am drawn to the idea of DIY, but probably wouldn't want to be managing the investments myself daily or maybe even weekly. I have always looked to put my pension investments in ethical and/or green funds where possible, and would like to continue that approach, even if it doesn't necessarily give the best returns.

Bearing that in mind, can you suggest a) where I can go to learn enough to competently run it myself on a DIY platform, and b) do you know if there are any DIY platforms that are better for offering green and ethical funds?

There are now "investment pathways" which all drawdown providers offer, basically a small number (4 or 5) ready made investment options depending on what you want to do with your drawdown, see: https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/drawdown-investment-pathways

Some providers will offer "ethical/green" funds although a lot are baking "ESG" into their standard offerings under pressure from regulators and govt, eg see this from HL https://www.hl.co.uk/retirement/drawdown/investment-pathways

Thank you, I will investigate all those.

dunstonh

From reading this forum it sounds as though withdrawing a partial lump sum from your pension might take 2-3 months (although some pension administrators are quicker than others) so you could leave it invested until your plans are more solid?

This is where it can differ on the service levels.   On an advised case, if the withdrawal is in line with the expected drawdown strategy then the IFA doesn't need to do much work as the plan is already laid out and nothing is happening that is unexpected.   The IFA can key turn that around in hours and have it keyed in and the money potentially in your account the same day (unless it has to go through payroll).

With the non-advised poorer service-related providers/platforms, you could be talking weeks before you can get a telephone appointment to fo through their phone process with each withdrawal.   However, there are far better DIY providers/platforms on the service front that can turn it around quicker than that.

The stated fees for the with-profits funds are actually 0.5% lower than the managed funds and the equity funds. 

Insurers tended to be either unit linked or with profits in their philosophy.   Then some of the wp insurers introduced unit linked and offered both.   Then WP went out of fashion and unit linked took over.     Over the years, the charges on plans have continuously reduced.     So, the reasons for any charges differences are more likely to be down to when they were bought rather than them being unit-linked or with profits.  Indeed, most providers that offered both methods had identical charges for both methods.

If you are looking at older plans, then you should be on guard for safeguarded benefits.     For example, the last provider of guaranteed annuity rates (GARs) stopped offering them in 1995. However, if you carried on paying in beyond that point on a plan with GARs, guaranteed minimum maturity values etc then you retained those benefits.

If there are no GARs, then all of your pensions are statistically likely to be out-of-date compared to modern plans.  By out-of-date we are talking higher charges, little or no online functionality, limited fund choice, little or no ability to use most of the various drawdown methods.   On the charges front, pensions saw charges drop between 1998-2001 and then again around 2007/8 and again leading up to 2012 and again around 2018.  So, your plans have probably been out-of-date for a while.  Although some old plans can be valuable gems worth keeping.

zagfles

dunstonh said:

From reading this forum it sounds as though withdrawing a partial lump sum from your pension might take 2-3 months (although some pension administrators are quicker than others) so you could leave it invested until your plans are more solid?

This is where it can differ on the service levels.   On an advised case, if the withdrawal is in line with the expected drawdown strategy then the IFA doesn't need to do much work as the plan is already laid out and nothing is happening that is unexpected.   The IFA can key turn that around in hours and have it keyed in and the money potentially in your account the same day (unless it has to go through payroll).

With the non-advised poorer service-related providers/platforms, you could be talking weeks before you can get a telephone appointment to fo through their phone process with each withdrawal.   However, there are far better DIY providers/platforms on the service front that can turn it around quicker than that.

Done it twice with HL, no need for any phone process, just messaged them online and they sent out the necessary forms in snail mail which we filled in and returned. But as above if you have a plan then you can set it up beforehand - I got everything sorted a few weeks before my 55th birthday and the TFLS was in my account the day after my birthday.

gm0

@Fretful

Ah Ethical Funds.

The obvious point is that if you want ethical funds you will need a platform with a fair choice of them.  Also research carefully to discover if what they mean by ethical is a good enough fit to what you think is ethical in terms of constraining your investment.

A lot of ESG funds are basic and not that ethical once you poke at it a bit.   Monevator blog article on it a few months back.
I personally use a FTSE4Good Developed fund from a limited range occupational pension (the only ethical one in it) which is basically global developed equities (by weight so large capitalisation) - but with a few knockouts based on the basic ethics criteria they use for the index it tracks.  I don't mind the knockouts but I don't for a minute believe that makes the remaining 1500 firms in the fund ethical paragons.  Far from it.  To me it's a global equities tracker.  With just a hint of warm and fuzzy.

People commonly have very bespoke views on what is unethical and should be excluded.  Whole sectors ? Firms within sectors based on behaviour (e.g. contribution to energy transition investment within oil and gas).   Are nuclear out (military dual use - they often are) or are they in becuase low carbon energy. What about Nestle given past scandals.  Pharma sector throws up problems and more and less ethical players also.

This is a minefield which leads quickly to individual stock screening and picking to do it properly. 

Yet the industry knows a lot of us get a warm fuzzy feeling about ethical and would like to direct capital positively in a small way provided it isn't too costly. To do our bit.  So they create new indices and create funds to implement them and then charge a higher price for the very slightly altered list of stocks.  This is accompanied by a large dollop of marketing !!!!!! about the superb governance they are implementing for it. 

Caveat Emptor. 

Fretful

gm0 said:

@Fretful

Ah Ethical Funds.

The obvious point is that if you want ethical funds you will need a platform with a fair choice of them.  Also research carefully to discover if what they mean by ethical is a good enough fit to what you think is ethical in terms of constraining your investment.

A lot of ESG funds are basic and not that ethical once you poke at it a bit.   Monevator blog article on it a few months back.
I personally use a FTSE4Good Developed fund from a limited range occupational pension (the only ethical one in it) which is basically global developed equities (by weight so large capitalisation) - but with a few knockouts based on the basic ethics criteria they use for the index it tracks.  I don't mind the knockouts but I don't for a minute believe that makes the remaining 1500 firms in the fund ethical paragons.  Far from it.  To me it's a global equities tracker.  With just a hint of warm and fuzzy.

People commonly have very bespoke views on what is unethical and should be excluded.  Whole sectors ? Firms within sectors based on behaviour (e.g. contribution to energy transition investment within oil and gas).   Are nuclear out (military dual use - they often are) or are they in becuase low carbon energy. What about Nestle given past scandals.  Pharma sector throws up problems and more and less ethical players also.

This is a minefield which leads quickly to individual stock screening and picking to do it properly. 

Yet the industry knows a lot of us get a warm fuzzy feeling about ethical and would like to direct capital positively in a small way provided it isn't too costly. To do our bit.  So they create new indices and create funds to implement them and then charge a higher price for the very slightly altered list of stocks.  This is accompanied by a large dollop of marketing !!!!!! about the superb governance they are implementing for it. 

Caveat Emptor. 

I am sure you are right about all this. It was so simple when I took my first PP way back in the 80s, I told the adviser the kind of stuff I didn't want my money invested in and he told me the only choice was Friends Provident Stewardship funds. It too may not have been perfect, but it was all there was (or at least all I was told about).

I guess that probably leads me to thinking that stocks and shares are probably the way to go if I want to do that, so I can feel satisfied that all my choices are what I want them to be. But then that sounds like it might be a tough job for an ignorant first-time self-investor like me...